The Dangers of Regulatory Overreach and Those Who Exploit It

In case you missed it, American Banker this week launched a series that sheds some light on the unintended consequences that can result from the aggressive application of regulations. The series explores National Fair Housing Alliance allegations that several large banks have failed to adequately maintain foreclosed properties in predominately minority neighborhoods, which they say is dragging down surrounding communities.

If true, the allegations are truly shameful. But the article raises questions about the NFHA’s claims. It notes that the organization has disclosed addresses for only a fraction of the properties it alleges have been neglected, has regularly misidentified the institutions responsible for maintaining certain homes, and is financially dependent on the Department of Housing and Urban Development and legal settlements with the banks it targets. These settlements include a $42 million agreement with Wells Fargo, not a penny of which will go to individual homeowners. So the only thing shameful here is NFHA’s dubious allegations and HUD’s blatant misuse of government authority.

Make no mistake, I understand and support the principle of fair lending. Everyone who applies for credit should be treated equally and fairly. And banks in the unfortunate position of having to maintain foreclosed properties should not discriminate based on where those properties are located. But we must not forget that regulations have costs, and those costs are very often borne by the very individuals the regulations are meant to help.

In the case of the American Banker article on the NFHA, it is difficult for me to see how underserved communities benefit from the organization’s questionable claims and self-serving legal settlements. Instead of forcing financial penalties, we should reduce regulatory burdens to free up the flow of credit to support the economic recovery for all citizens in all our communities.